Why you should include dynamic drug pricing in your CEA model

A Health Affairs Forefront paper by researchers Melanie Whittington, Peter Neumann, Joshua Cohen, and Jonathan Campbell makes a compelling case for incorporating drug price dynamics into cost effectiveness analysis.

The first questions many people may have is ‘how do drug prices usually change over time?’

A drug’s net price often increases following launch and may later fall as competitors enter the market. Prices usually fall more noticeably after the drug loses exclusivity and generic substitutes become available. However, CEAs in the past have rarely accounted for these possibilities and instead assume that a drug’s price remains constant over time.

The authors argue that incorporating these pricing changes is vital to more appropriately measuring treatment value. It is particularly relevant with the passage of the Inflation Reduction Act as drug prices will increasingly be negotiated by CMS when the treatment nears 9 (small molecule) or 13 (biologic) years after launch.

The authors argue for including dynamic pricing into CEA analysis using the following logic:

By assuming a drug’s price does not change, traditional CEAs can misrepresent the total drug cost over time. For example, a CEA comparing a new drug to an inexpensive alternative can overstate the new drug’s added cost over its life cycle if it assumes that the drug’s introductory price will persist indefinitely. By neglecting to adjust for the “downstream” drop in price, the CEA may incorrectly suggest the new drug represents unfavorable value. Importantly, assumptions about drug price dynamics should also apply to comparator therapies in an analysis. Assuming no change in comparator drug prices can overstate the value of the new drug if the comparator treatment is nearing its loss of market exclusivity. A static drug pricing assumption fails to account for anticipated savings from the genericization of the alternative treatment.

The authors note that pricing dynamics are particularly important when comparing pharmaceutical interventions to medical interventions (such as surgery). Whereas the former has significant price declines due to genericization after loss of exclusivity, the price of most surgical procedures tend to remain constant or even increase over time.

The full article is available here.